The Massive Bitcoin Split and How It...

The Massive Bitcoin Split and How It Happened

Segregated Witness (SegWit) recently locked in after overwhelming consensus (100% signalling) and will be globally deployed around the time that this article is published, on August 24. This concludes an almost three-year-long scaling debate which started gaining traction in early 2015. Before arriving at this pivotal moment, however, the Bitcoin community splintered in a long-standing battle resembling that of geopolitical turf wars.

By now, scaling has become the issue taking front-and-center in conversations since Ethereum and ICOs clogging the network made headlines. It made users keenly aware of the cold hard fact that all decentralized networks will eventually face scaling issues. Unfortunately, Bitcoin simply got to that bridge first. And even then, pre-SegWit Bitcoin is 180 times more scalable than Ethereum.

The demand for Bitcoin usage over the past year quickly began to bore on the limited transaction capacity of the network. The Bitcoin “highway” had been constrained to a base block size of 1MB, permitting a “speed limit” of between 3.3 to 7 transactions per second. Often compared to VISA, whose capacity easily accommodates 2,000 transactions per second, the choking Bitcoin network could hardly compete. As a result, money started flowing into alternative cryptocurrencies.

What followed was a renege on said agreement. In it, heads of the largest mining pools and Application-Specific Integrated Circuit (ASIC) manufacturers agreed to activate SegWit, given that a hard-fork to increase the base block size was satisfied. The hard-fork, and therefore base block size increase, portion of the agreement was unfulfilled by the Core developers for technical reasons, leading to contention and a bifurcation of the community.

As such, SegWit, unable to gain meaningful hash power support behind it, was blocked by miners. That is, until some 15 months later, when an alternative scaling solution was thrown into the mix.

SegWit2x, or the New York Agreement, was a technical scaling solution conjunct political compromise proposed by Barry Silbert, the head of Digital Currency Group (DCG). It was an effort to get the economic majority of Bitcoin companies to sign off on an agreement which would ultimately play a role in getting SegWit activated. SegWit2x was a replica of the Hong Kong Agreement, barring some minor changes. Drafted just before CoinDesk’s Consensus conference last May, the head of DCG got over 50 companies to sign the agreement, a cooperative that represented over 80% of the networks’ hash power.

Bitcoin Core developers, or the analogous legislative branch of Bitcoin, on the other hand, were unanimously not onboard. Instead, they primarily supported SegWit activation as enforceable by the User Activated Soft Fork (UASF), or BIP 148.

SegWit2x and the UASF were two proposals aimed at the same goal, though the means were completely different. SegWit2x was a proposal that sought political compromise and received near-unanimous industry support from the various Bitcoin wallet, payments, exchanges, and businesses. The UASF, on the other hand, was a nuclear option used to force the hands of the mining community. The two existing in conjunction are what ultimately led to Segregated Witness finally getting activated after almost three years.

The Impact

The impact of this activation is massive. Blockchain visionaries and experts have been analyzing and predicting the future of Bitcoin (and the wider cryptocurrency space) since the fork was confirmed. Many Blockchain experts believe that this could be a very good development for Bitcoin. The split may cause a stir, but the overarching goal of the split is a good one. If Bitcoin is to fulfill Satoshi Nakamoto’s vision of a widely adopted digital equivalent of cash, scaling is incredibly important, otherwise overall Bitcoin adoption would suffer.

Looking towards the future, many Blockchain and cryptocurrency experts believe there could be more splits to come, not from disfunction within the Blockchain community, but as a means of furthering adoption and increasing transaction speed. Experts, like Peter Borovykh, are excited:

“Bitcoin Cash has a chance to become the dominant cryptocurrency contingent upon its ability to gain trust and support from both current and new players as well as security of its network. Due to, at least temporary, solution of the scalability issues, Bitcoin Cash could attract more new capital to the entire crypto space, thus helping increase overall market cap.”

Bitcoin is still massively on the rise, and it still has the potential to unify the globe under one digital currency. However, the community’s struggles have let other, albeit smaller, cryptocurrencies get a solid piece of the market for themselves. The deployment SegWit indicates Bitcoin’s willingness to adapt to changes around it, and it sends a strong message that Bitcoin’s dominance over the crypto world is here to stay.

Christine Chiang is a Bitcoin and blockchain journalist covering industry news from around the world. She connects a general audience to the deep field of cryptocurrencies to garner the next wave of innovative blockchain applications.